As you might have heard, one of the key academic papers (Reinhart & Rogoff, 2010) on which the case for austerity stood has been widely debunked after the revelation that it's main conclusion (debt to GDP ratios over 90% spell doom) was the product of a simple spreadsheet error. And when I say simple, I mean a failure to include all the rows in the sum total of a column, not a syntax error in a complex array formula. We're talking dipshit simple here. Imagine if the first book to be lodged in the new George W Bush Presidential Library was Pippa Middleton's party planning opus. That sort of simple. The FT made the astute point that if you want to blame software you should point the finger at Powerpoint rather than Excel, on the grounds that this was a classic case of a dubious assertion being seized upon and over-hyped by policy-makers looking to justify a prejudice. There was only one spreadsheet but the dodgy claim will have been replicated in countless presentations.
Of course, this epic-fail has not led to Austerian politicians the world over slapping their foreheads and saying "My God! How could we have been so stupid!" You might even have spotted a smirk playing around the corner of George Osborne's mouth at the mere thought of this. Since 2010, the increasingly evidence-free campaign against stimulus has simply been resistance to any backsliding on the neoliberal project, with government debt taking on the bogey role played by inflation in years gone by. The macroeconomic policy dichotomy boils down to the preservation and enhancement of existing concentrations of wealth versus the diffusion of wealth as a means to increase aggregate demand. Thus we have QE and bank bailouts, which support property and equity values, rather than "helicopter money" or cuts in VAT. Together with the indulgence of tax-dodging and rent-seeking, this has led to advanced countries starting to resemble the polities of "resource curse" nations. As Steve Randy Waldman puts it "There’s a sense in which we are all Nigerians now", or more fully:
The global economy is succumbing to a technologically-driven resource curse, coalescing into groups of insiders and outsiders and people fighting at the margins not to be left behind. Our governments are transforming themselves from mediators among widely dispersed and interdependent interests to organizations that maintain and police the boundaries between the civilized and the marginal, who put down the insurgencies and manage the pathologies of the latter so that they do not very much impinge upon the lives of the former.
As wealth becomes more concentrated it becomes more rigid. This rigidity is manifested in an increase in privilege, which means both the ability to use wealth to buy status and advantage and the tendency of that advantage to secure more wealth. Though the recent Thatchgasm saw some commentators harp on about her rise from kinda-humble origins, as if she were an example of social mobility, the post-premiership award of a hereditary baronetcy (now passed on to "Sir" Mark) and the improbably generous speaking fees (now passed on to Tony Blair) were a perfect example of privilege in both old and new clothing. But privilege isn't usually so overt or personalised. More insidious is the casual acceptance of prejudice, which is the normative basis of privilege: I deserve it because I'm better than you. While racism and homophobia are in decline, largely because there are increasing numbers of rich non-whites and gays who expect the privilege that their wealth entails, the new "classism" is rampant, from the popular chav trope to the generalised assumption that the disadvantaged have only themselves to blame.
Another instance of prejudice is the belief that developing nations are made up of money-driven drones only too happy to make our commodities and share in the rising tide of global prosperity. An example of this can be seen in some of the commentary around the Bangladesh factory building collapse that killed at least 350 people. Matt Yglesias on Slate.com argued that it was fine for Bangladesh to have weaker health and safety laws than the US as this represented a trade-off against better wages: "in a free society it's good that different people are able to make different choices on the risk–reward spectrum". His assumption that there was a "collective calculus" by Bangladeshis is absurd, and wholly undermined by the reality that poor health and safety is usually the result of a failure to apply the law, often due to corruption or negligence, not the absence of law. The evidence of prejudice in this case is the unwillingness to apply the same logic to the coincidental explosion at the Texas fertliser plant that killed 14. Clearly, Texans did not make a "collective choice" to ignore risks in favour of rewards. Yglesias even fails to spot the obvious parallel with US history, namely New York's Triangle Shirtwaist Factory fire of 1911.
Other neoliberals have attempted to re-word Yglesias's faux-pas, emphasising that jobs in shitty factories are better than shitty jobs in the countryside, and thus peasants are making a rational choice when they head off to the city. Of course, this ignores a couple of facts that evaporate the figment of choice. The first is that increases in agricultural productivity inevitably lead to fewer agricultural jobs, obliging surplus rural workers to head for the towns. Productivity gains are partly more-from-the-same (higher yields) and partly the-same-from-less (fewer workers). As the amount of land (i.e. base productive capacity) cannot increase, agriculture always reduces employment in the long run. The second fact is historical coercion. The enclosure of vestigial common land prevents agricultural labourers from being self-supporting and therefore choosy. You either accept low rural wages or you move to the city. This process has been going on for centuries - it's a trickle not a flood - though there are peak periods (e.g. Britain in the early 19th century and developing nations over the last 20 years).
The common thread here is prejudice and self-delusion. Bangaldeshi factory workers are assumed to be willing participants in globalisation because the alternative thought is unpalatable. Similarly, the revelation that high debt ratios do not necessarily impede growth will not cause a change in policy, because that policy was never about securing growth. It's about protecting privilege.
Hmm, not sure I agree with all those premises, David. There are a hell of a lot of very privileged people around the globe now, who are, and have been arguing for some time that austerian economics is a mistake, and damaging to capital. Pointing out the mistake of Reinhardt and Rogoff, is only a part of that.
ReplyDeleteI still believe that the real source of those policies is two-fold. Firstly, a material basis, in which right-wing populist parties like the Tories, and Republicans push an economic policy that is seen to be in the interests of their actual social base within the ranks of the small capitalists, and petit-bourgeoisie, rather than the interests of big industrial capital. Secondly, intellectual inertia in the ranks of the State's ideological apparatus.
The latter equally applied when Keynesianism was continued in the 1970's after it was obvious it wasn't working.
You are, of course, right that Bangladeshi workers have not made a calculated decision to leave the countryside for the towns, because they have bought into globalisation etc. As with British agricultural workers in the 18th and 19th century, they were forced off the land by various means, and rising agricultural productivity reduced the need for agricultural workers.
Nevertheless, as I've set out in my summaries of Marx's Capital, we shouldn't glamorous the conditions that the agricultural workers left behind either. They usually are pretty abysmal, which is why Marx and Engels referred to Capitalism rescuing them from the "idiocy of rural life". Moreover, the fact of them being turned into industrial proletarians is itself historically progressive - the necessary means for creating the force that will establish socialism.
But, likewise you are right to criticise the neo-liberal who argue that these workers trade off working conditions for higher living standards etc. Marx's approach is again instructive.
In relation to child labour, for example, he would have had little time for today's wishy washy liberal opposition. He argued, not only that it was unavoidable, but that avoiding it was also reactionary. Rather he argued, for workers placing limits on the hours that children should work, and insist on it being combined with education.
Similarly, the way forward for workers in Bangladesh and other such developing economies is to fight for such Health and Safety improvements. In fact, as Marx points out in relation to Britain, those very changes went along with improvements in workers wages, because Capital was led at the same time to raise productivity. In relative terms that may mean that fewer workers are employed, but the higher profits, and greater competitivity gained, often means that capital expands enough to ensure that more workers absolutely are employed.
In fact, there was a book written back in the 1970's by Geoffrey Kay, which showed why to the surprise of liberal economists, developing economies often did utilise capital intensive rather than labour intensive techniques, which then led to rising unemployment.
I think that where that doesn't happen, its the result of shortsightedness by the state, or else competition between small producers rather than a means of furthering the interests of an elite. In fact, in the long and not so long run, such policies do not do that anyway. The fact that the US has carried out alternative policies, and those policies rather than those of the Austerians have led to the expansion of capital, is evidence of that.
If austerity were not ultimately in the interests of Big Capital, I doubt we'd see right-wing parties pursuing it, regardless of the need to represent their Small Capital base.
ReplyDeleteYou are right that there are plenty of privileged capitalists who have argued against it on the grounds that growth trumps debt, so there is clearly a tension here, but the majority of neoliberals believe that austerity is, on balance, a safer option than public expenditure-led stimulus at present (cf. the recent Blairite insurgency on the subject and Miliband's flip-flop on borrowing this week). That may well change soon.
If the pace of US recovery quickens, and if Japan starts to grow / inflate once more, then the expectation of a rising level of global demand may prompt a volte-face in the EU and the UK. The Bundestag elections in September may prove to be the pivot. The UK is likely to be a late adopter, which will be the exact opposite of its track record in the 1930s (i.e. dropping the gold standard ahead of the field).
What we saw in 2008/9 was a concerted effort to prop up the neoliberal world order through bank bailouts. What we have seen over the last 3 years is an attempt to preserve gains through stabilising equity and asset prices, while pushing a pro-small capital ideology (blame the victims and deny the power of government). It's a policy of caution, which has left it open to criticism both from old-school Keynesians and from radical neoliberals. The latter want stimulus now, but on a private-public partnership basis (i.e. to the ultimate advantage of large corporations that have a symbiotic relationships with the state).
Though there has been much noise about cutting red tape and health and safety, the significant spadework of this government has concerned the furtherance of privatisation. I anticipate a neoliberal resurgence in 2014: "rebuilding the fabric of public services without incurring debt". In other words, the privatisation of stimulus.
What I found significant about Matt Yglesias's comments on the Bangladesh tragedy was that this was a big capital defence of small capital practice - i.e. cramming workers into a rickety building, in breach of H&S regs, was justified by an appeal to historic forces and aggregate benefit. I read this as a sign of neoliberal impatience to get the "motor of history" moving up the gears again.
David,
ReplyDelete"If austerity were not ultimately in the interests of Big Capital, I doubt we'd see right-wing parties pursuing it, regardless of the need to represent their Small Capital base."
I think that is way to determinist and mechanistic. It assumes a one to one relation between the power and interests of Big Capital, and the political regime that does not exist. The limitation for Big Capital in a bourgeois social democracy is precisely that parties have to be elected, and that means winning a coalition of support, that today extends across a wide spread of opinion. The point is that the dominant section of capital will only show its hand openly via the State, when the political regime undertakes measures that represent an immediate existential threat to it e.g. Chile in 1973.
Neo-Liberalism is, in fact an ideology as many Marxist economists determined in the 1980's, and early 90's, which not only represents, the interests of the small capitalists, but also of Money Capital, precisely those sections on which the Tories rest. Even Big Capital is not homogeneous, let alone capital as a whole. Many of those Money Capitalists are themselves Big Capitalists. But, the point is that it is Big Industrial Capital that ultimately has to be dominant, because without it, the vast amounts of Surplus Value now required to keep the wheels of Capitalism turning, cannot be produced. Austerity, undermines that, thereby undermines Capital itself.
On borrowing its necessary to be clear on exactly what is being spoken about here. The reality, here is that no one, not even the most right-wing Tories, except perhaps Liam Fox, are talking about actually running a Budget Surplus - as Brown and Balir did in the late 90's, and Clinton did in the mid 90's. What is being spoken of is reducing the extent of the deficit i.e. borrowing less, not paying back the borrowing. In truth, I don't think any economist, Marxist or otherwise, would believe that reducing the borrowing is not required. No economy can proceed by simply continuing to borrow more and more.
The Tories are wrong to talk about profligate Labour Spending, in fact the deficit to GDP ration was smaller under Blair and Brown than it had been under Thatcher and Major. But, the deficit did balloon after 2007/8 precisely to deal with an emergency. You do not keep spending and borrowing at emergency levels after the emergency has passed. The question is, how you reduce the deficit. There are many aspects to that in terms of pace, but also in terms of what you focus spending on, in order to generate growth, that means the borrowing shrinks naturally. As I've written elsewhere this goes back to the debate started in the 1980's over the low wage-high debt model introduced by Thatcher. The small capitalists and money capitalists benefit from that model in the short term, but its hard to see how Big Industrial Capital benefits in the short or long term from such a strategy.
The pumping up of asset prices as a consequence of money printing, in fact shows why this strategy does not benefit big industrial capital. Part of the reason for it is based on Pigou's notion about the Wealth Effect. It assumes that people who feel wealthier, because the price of their house or shares has gone up, will be more prepared to spend. It isn't working, because people are scared the bubbles in those assets will pop anyway, and are more scared they will lose their job, so they save rather than spend. But, worse for Big Capital, high house prices send up the Value of Labour-Power (high cost of buying and renting means workers need higher wages), and drain spending power away from consumption into interest payments.
ReplyDeleteWorse, if money capitalists believe they can make big "profits" by gambling on the stock and bond markets, they are less likely to make funds available for productive investment. Why risk your money in buying actual factories, machines etc, and producing something you may not be able to sell if you think, money printing means the price of bonds and shares will continue to rise. The consequence is fictitiois capital inflates, and real productive capital contracts. That spells doom for Big Industrial Capital.
I think, privatisation, as I've said before is partly driven by political vote grabbing, but also by the fact that Neo-Fordism means the private sector now can offer an efficient alternative that in the past was not possible. Last para again not so sure. Capital maintains a United Front in public even whilst stabbing the back of its smaller brethren. On the other hand, Big Capital has frequently used small capital to do the jobs it is not profitable to do itself, and thereby provide itself with cheap inputs e.g. use of domestic industry even in late 19th Century by textile firms.
I thought, Harriet Harman had a surprisingly good response on Question Time last night. Opposing the odious David Starkey's calls for Import Controls, and other calls for consumer action, she correctly said the solution lay in strong workers organisation in Bangladesh and other such places, and for the building of strong international labour organisations to enforce decent labour laws! Thta, of course, as it did in 19th century, would also be a way of getting the motor of history running.
Good historical cameo on "The Village" last week. The company detective advised the company to let in the union, because it was a better way of controlling the workers, than individual bargaining, or mavericks assuming the role. That is an accurate representation of company thinking from the end of the 19th century, and of the role the TU bureaucrats played.
Boffy,
ReplyDeleteYou note that capital needs a coalition of support. I agree, but I'd suggest that the composition of capital has changed over the last 50 years - neoliberalism is the ideological manifestation of this change - such that the consensus point has shifted from domestic growth to the preservation of wealth.
Key to this shift is that Big Capital is no longer dominated by producers of industrial commodities. This is partly a consequence of the impact of Money Capital (financial pressure to get out of high volume / low margin business), partly due to the historic shift from commodities to services in developed economies (much of manufaturing revenue is now maintenance and support fees), and partly the impact of globalisation (allowing commodity production to be offshored). Globalisation also means that big business can now secure growth outside its home regions when these are depressed. This explains why a cheerleader for modern Big Capital such as Martin Sorrell remains pro-austerity.
This shift means that capital, in all its forms, is increasingly motivated by rentier interests and hegemonic defence. Here are two quotes that I think capture the spirit of this.
Steve Randy Waldman: "We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives ... The revealed preference of the polity is to resist losses for incumbent creditors much more than it is to seek gains".
David Graeber: "It does often seem that, whenever there is a choice between one option that makes capitalism seem the only possible economic system, and another that would actually make capitalism a more viable economic system, neoliberalism means always choosing the former".